Anti-money laundering
Chapter 9 – enforcement
9.1General comments
The UK AML/CTF regime is one of the most robust in Europe. Breaches of obligations under the regime are backed by disciplinary and criminal penalties.
Law enforcement agencies and regulators are working co-operatively with the regulated sector specifically and solicitors generally to assist compliance and increase understanding of how to effectively mitigate risks. However, be in no doubt of the seriousness of the sanctions for a failure to comply, nor the willingness of supervisory and enforcement bodies to take appropriate action against non-compliance.
9.2Supervision under the regulations
Regulation 23 provides for several bodies to be supervisory authorities for different parts of the regulated sector.
Where a person in the regulated sector is covered by more than one supervisory authority, either the joint supervisory authorities must negotiate who is to be the sole supervisor of the person, or they must co-operate in the performance of their supervisory duties.
A supervisory authority must:
- monitor effectively the persons it is responsible for
- take necessary measures to ensure their compliance with the requirements of the regulations
- report to SOCA any suspicion that a person it is responsible for has engaged in money laundering or terrorist financing
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9.2.1Solicitors Regulation Authority
The supervisory authority listed in the regulations for solicitors in England and Wales is the Law Society of England and Wales. This responsibility has been delegated in practice to the Solicitors Regulation Authority (SRA).
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9.2.2Other supervisors
Other supervisory authorities which may be of relevance to solicitors include:
- The Financial Services Authority – www.fsa.org.uk
- The Insolvency Service – www.insolvency.gov.uk
- The Association of Business Recovery Professionals – www.r3.org.uk
- The Council of Licensed Conveyancers – www.theclc.gov.uk
- The Chartered Institute of Taxation – www.tax.org.uk
Where the SRA reaches agreement with another supervisor about who is to be the supervisory authority for the solicitor, this agreement will be made known to the solicitor in accordance with Regulation 23(3).
In all other cases of supervisory overlap, you should consider both this practice note and any guidance issued by the other supervisory authority. Where the standards differ you should comply with the higher standard.
You will be regulated by both the SRA and the FSA if you are a trust or company service provider and are an authorised person. See Regulation 23(1)(a)(ii). If so, you are required by Regulation 31 to advise the FSA of your intention to act as a trust or company service provider by 15 January 2008, if currently acting as such, or 28 days after commencing acting as such once the regulations come into force.
The Joint Money Laundering Steering Group (JMLSG) provides guidance to the financial sector which the FSA considers when assessing compliance with AML/CTF obligations.
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9.2.3Enforcement powers under the regulations
Part 5 of the Regulations gives designated authorities a variety of powers for performing their functions under the regulations. They can also impose civil penalties for non-compliance.
The powers are:
- Regulation 37: power to require information from, and attendance of, relevant and connected persons without a warrant
- Regulation 38: power to enter and inspect without a warrant
- Regulation 39: power to obtain a warrant to do things under regulations 37 and 38
- Regulation 40: power to obtain a court order requiring compliance with regulation 37
HM Treasury has stated that designated authorities may use these powers in their role as supervisor, and only on those relevant persons they supervise.
We are concerned that the wording of Part 5 may actually create a new regime for civil enforcement against all relevant persons, as the function of a designated authority is simply stated as the imposition of civil penalties for a breach of the regulations. Also, the regulations clearly contemplate the use of the power against a solicitor where they could not be a connected person, for example in Regulation 37(7).
If an officer of a designated authority comes to your firm seeking your compliance with Regulations 37 and 38, you may request that they seek a court order under Regulation 39 or 40 for your compliance due to your duty of confidentiality to your client.
9.3Disciplinary action
Conduct which fails to comply with AML/CTF obligations may also be a breach of the Solicitors' Code of Conduct 2007, and result in disciplinary action by the SRA.
For further information on the Solicitors' Code of Conduct go to www.sra.org.uk or contact the professional ethics helpline on 0870 606 2577 (inside the UK), 1100 to 1300 and 1400 to 1600, Monday to Friday.
9.4Offences and penalties
Not complying with AML/CTF obligations puts you at risk of committing criminal offences. Below is a summary of the offences and the relevant penalties. In addition to being a principal offender, you could also be charged with offences of conspiracy, attempt, counselling, aiding, abetting or procuring a principal offence, depending on the circumstances.
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9.4.1POCA
Section
Description
Penalty
327
Conceals, disguises, converts, transfers or removes criminal property
On summary conviction – up to six months inprisonment or a fine or both
On indictment – up to 14 years inprisonment or a fine or both
328
Arrangements regarding criminal property
329
Acquires, uses or has possession of criminal property
330
Failure to disclose knowledge, suspicion or reasonable grounds for suspicion of money laundering – regulated sector
On summary conviction – up to six months inprisonment or a fine or both
On indictment – up to five years inprisonment or a fine or both
331
Failure to disclose knowledge, suspicion or reasonable grounds for suspicion of money laundering – nominated officer in the regulated sector
332
Failure to disclose knowledge or suspicion of money laundering – nominated officer in non-regulated sector
333
Tipping off
On summary conviction – up to six months inprisonment or a fine or both
On indictment – up to five years inprisonment or a fine or both
342
Prejudices an investigation
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9.4.2Terrorism Act
Section
Description
Penalty
15
Fundraising
On summary conviction – up to six months inprisonment or a fine or both
On indictment – up to 14 years inprisonment or a fine or both
16
Use and possession
17
Funding arrangements
18
Money laundering
19
Failure to disclose
21A
Failure to disclose – regulated sector
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9.4.3Regulations
Regulation 45 lists a number of sections, the breach of which is an offence.
Section
Description
Penalty
7 (1)
Applying CDD to new customers
On summary conviction – a fine
On indictment – up to two years inprisonment or a fine or both
7 (2)
Applying CDD to existing customers
7 (3)
Determining extent of CDD on a risk-sensitive basis and being able to demonstrate this to the SRA
8 (1)
Conducting ongoing monitoring
8 (3)
Determining extent of ongoing monitoring on a risk-sensitive basis and being able to demonstrate this to the SRA
9 (2)
Verification prior to the establishment of a business relationship or carrying out of an occasional transaction
10 (1)
Relates to casinos
11 (1)(a)
Not use a bank account without CDD
11 (1)(b)
Not establish a business relationship or carry out an occasional transaction if no CDD
11 (1)(c)
Terminate existing relationship or occasional transaction if no CDD
14 (1)
Conduct enhanced due diligence
15 (1)
Relates to financial and credit institutions
15 (2)
16 (1)
16 (2)
16 (3)
16 (4)
19 (1)
Keep your own records
19 (4)
Keep records others have relied on
19 (5)
Be prepared to provide records others have relied on
19 (6)
Ensure those you rely on are willing to provide records
20 (1)
Establish policies and procedures
20 (4)
Relates to financial and credit institutions
20 (5)
21
Train relevant employees
26
Does not relate to solicitors
27 (4)
33
Directions under 18
Not to act where Treasury makes a direction
9.5Joint liability
Regulation 47 provides that offences under the Regulations can be committed by a firm as a whole, whether it is a body corporate, partnership or unincorporated association.
However, if it can be shown that the offence was committed with the consent, contrivance or neglect of an officer, partner or member, then both the firm and the individual can be liable.
9.5Prosecutorial agencies
The Crown Prosecution Service is a prosecuting agency for offences under POCA, the Terrorism Act and the regulations.
The Revenue and Customs Prosecutions Office is a prosecuting authority for offences under POCA and the regulations.
The FSA is a prosecuting authority under POCA and the regulations as a result of section 402 of the Financial Services and Markets Act 2000.
The Office of Fair Trading, the Local Weights and Measures Authority and the Department of Enterprise, Trade and Investment in Northern Ireland are all prosecuting authorities for breaches of the regulations.